The connected TV U.S. ad market will grow to $19.1 billion this year from $9 billion in 2020, according to eMarketer. Meanwhile, TV ad spending is expected to hit its peak this year at $68.4 billion in the U.S., before starting to decline in the coming years, eMarketer said. At the same time, Netflix is having a hard time retaining subscribers, dropping 200,000 accounts last quarter to 221.6 million subscribers. The company also forecast it could lose another 2 million subscribers this quarter, and it is dealing with the phenomenon of password-sharing, which affects its ability to monetize the service.
That’s where ads come in: It’s unclear what lower price Netflix would have to set to entice enough consumers to opt into the ad version, but there are signs that consumers are willing to pay less to endure ads. A recent Kantar report said that one of the biggest reasons people cancel subscription services is because of the price. Of Netflix users surveyed, 26% cancelled to save money, Kantar found. The price wasn’t the only reason, though. Viewers also are making subscription decisions based on the content, and Netflix has greater competition from Disney, ViacomCBS, Amazon and others.
Netflix could turn its fortunes around with advertising because brands have been interested in reaching its audiences for years. And Netflix is sitting on a mountain of data that could help target ads. “Netflix could partner with someone from an identity resolution or data standpoint,” Swanston said.
“Netflix already has a trove of first-party data that can deliver a variety of audience segments for advertisers, and relevance for consumers,” said Adam Helfgott, CEO at MadHive, the programmatic ad tech firm. “In order to sell that inventory in context with TV overall for advertiser objectives, they will need to integrate into the ecosystem and partner with DSPs, SSPs, and infrastructure providers.”
TV Upfronts and Newfronts 2022 calendar
On Tuesday, Hastings mentioned how Netflix could proceed into advertising through partnerships: “We can be a straight publisher and have other people do all of the fancy ad matching, and integrate all the data about people,” Hastings said.
Advertisers see another potential avenue to explore with Netflix, beyond inserting ads into shows; they also want to integrate with the programs. That’s an area Netflix has been less accommodating than other platforms, according to Swap Patel, executive director of media at ad agency McKinney. When brands get mentioned in Netflix shows, like Eggo waffles in “Stranger Things,” it can be a powerful marketing opportunity. Last year, Duolingo, the translation app, capitalized on an appearance in “Emily in Paris.” “Netflix is not the same as your typical advertising entities,” Patel said. “As they grow this offering, they’ll be figuring some version of that [brand integration] out, to communicate the vastness of the Netflix audience, the value, and the mechanics of how to reach them.”
Brad Dixon, co-founder and executive creative director of Special Operations Studios, the creative agency, agreed that Netflix could offer combination of targeted ads and brand integrations. Netflix already has its own ecommerce store that sells products linked to its shows, some through collaborations with brands like Nike and Balmain.
“Show integrations plus native ad units, or any mix of the two, would be cool from a creative perspective,” Dixon said.
